As many organisations attempt to cut costs to offset flat revenues, it is imperative that they understand, and have a consolidated view, of all corporate-level spending. A consolidated view of spend data allows an organization to better negotiate with key suppliers by comparing their spend to industry benchmarks.
Finance teams carry the responsibility of understanding all aspects of the business. During downturns, they must be able to identify and forecast what costs, if cut, would be the least likely to negatively impact revenue generation in the future. The challenge for many CFOs is gaining visibility, followed by the control over many hidden costs.
Data is often fragmented, making it hard to gain full visibility and make cost-saving decisions
Typically, executives can view only a fraction of spend with their suppliers. An accurate and complete view of data would deliver the agility and actionable insight that could enable businesses to create successful cost reduction strategies while gaining competitive advantages.
Accurate visibility of spend management data is the key to unlocking the cost cutting questions. Nearly 90% of companies still use basic spreadsheet applications as their primary analysis tools, limiting the breadth and sophistication of analyses that can be executed. These issues lead Aberdeen Research to estimate that inadequate spend data management capabilities are costing businesses $260 billion dollars in missed savings opportunities annually.
A refined spend management strategy can unlock trends and highlight costs
Spend management is a process of collecting, collating, maintaining, categorising, and evaluating spend data to reduce procurement costs, improve efficiency, monitor and control workflows, and regulate compliance.
Spend management affects and manages various activities across the procurement cycle. It includes requisition processing, budgeting, planning, supplier management, contract management, inventory management, sourcing, and product development. Every organisation, regardless of their size and type, needs to have an efficient spend management process that gives them visibility and control over all costs.
Business and Travel expenses are a good example of a category that many organisations often fail to intelligently manage because of a lack of a clear spend strategy and suitable tools (technology) that will provide the necessary data. And, it is often the category where significant savings can be easily found if a consolidated view of data can be achieved.
“CFOs are concerned about consistently managing spending across the enterprise, which includes visibility across diverse ERP and best-of-breed solutions and all spending categories (eg, travel).” according to META Group analyst John Van Decker.
Reduce costs and increase your organisation’s competitive position with a closed-loop lifecycle process
Developing a closed-loop lifecycle process brings data from all stages of the lifecycle to be consolidated, optimised and ultimately reduced.
Take the example of travel and expenses (see graph below), this lifecycle process would facilitate working with best in class suppliers for each element of a trip, developing a consolidated view of the spend data which would in turn allow you to drive incremental improvements in supplier relationship management (cost reductions) and ensure cross-discipline alignment (company or department focused spend policies). It is only when you have this visibility of spend that you can get control of it and in turn, reduce it.
If we look closer at travel in the context of a closed-loop lifecycle; corporates have tended to turn towards one single provider to manage all aspects of travel in recent years. Flights, hotels – national and international in addition to the other component parts. But how relevant is this when flights are not being booked, leaving domestic hotel spend attracting blanket fees where the service requirement is lower.
As companies drill down on costs they are looking beyond legacy TMCs, and breaking out each stage of the journey e.g. train, taxi, petrol, accommodation, meals as unique components that can be optimized from a financial and operational point. The solution still needs to jigsaw together for user experience and simplicity, it’s not the same puzzle any more.
The value of traditional TMC’s is becoming less clear as international travel struggles. Annual sourcing programmes (that often attract service costs), are being reviewed. What’s the ROI on sourcing now and how to maximise that. With a global recession looming, the demand pattern of the specific company in question is much more relevant.
Blending a more efficient sourcing programme with tailored consortia rates and a wide base of supply makes more sense given the evolution of BAR over the last 4 months. There are significant savings to be made by obtaining a per trip cost rather than getting locked into an annual rate.
By working with the best-in-class provider for each stage of the trip, unique savings can be negotiated directly with each supplier, fees can be eliminated and with consistent spend policies followed by staff, immense savings and operational efficiencies can be found. Without these direct relationships with suppliers how do you really know you are getting the best rate.
Rather than handing over control of spend management to one single provider, companies can gain control and greater visibility of cost through focused trip management. Smarter technology will save a company hours of time by using best of breed for search, book and pricing, and centralizing payment, reporting and analytics which is what is most needed.
To drive down costs in the months ahead accurate analytics and real visibility will allow control of spend, and result in an intelligent and optimized spend management strategy.